The Impact of Capital and Foreign Exchange Flowson the Competitiveness of Developing Countries
IMF Working Papers, July 1, 2010
Source details
- Canonical URL
- The Impact of Capital and Foreign Exchange Flowson the Competitiveness of Developing Countries
Other formats
Bibliographic details
- Authors: Bassem M Kamar, Damyana Bakardzhieva
- Published: July 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455201372.001
Study scope and methodology
- Sample: 57 developing countries covering Africa, Europe, Asia, Latin America, and the Middle East.
- Objective: Compare the impact of six types of capital and foreign exchange flows on real exchange rate (REER) behavior and competitiveness.
- Authors: Bassem M Kamar, Damyana Bakardzhieva
- Publication date: July 1, 2010
- Series: Working Paper No. 2010/154
- Pages: 30
Key findings on real exchange rate effects
- Portfolio investments lead to real exchange rate appreciation.
- Foreign borrowing leads to real exchange rate appreciation.
- Aid leads to real exchange rate appreciation.
- Income leads to real exchange rate appreciation.
- Remittances have disparate effects across regions.
- Foreign direct investments (FDI) have no effect on the real exchange rate, helping to resolve the dilemma between attracting flows and preserving competitiveness.
Policy implications and analytical conclusions
- Not all capital and foreign exchange flows have the same impact on competitiveness; policy responses should be flow-specific.
- FDI’s neutral effect on the real exchange rate suggests FDI can be promoted without necessarily undermining competitiveness via REER appreciation.
- Flows associated with appreciation (portfolio investments, foreign borrowing, aid, income) may require macroeconomic or structural policies to mitigate adverse competitiveness effects.
- Heterogeneous regional effects of remittances imply tailored regional or country-level analysis before designing policy interventions.
Subject tags and technical focus
- Subjects: Balance of payments, Capital flows, Foreign direct investment, Foreign exchange, Portfolio investment, Real effective exchange rates
- Keywords: Africa, appreciation, appreciation of the REER, capital, Capital Flows, Competitiveness, Developing Countries, East Asia, Emerging Markets, FDI, FDI flow, flows to the CEECS, Foreign direct investment, Foreign Exchange Flows, GDP, investment, investments flow, Panel Data Econometrics, portfolio investment, portfolio investment outflow, portfolio investments to the region, Real effective exchange rates, Real Exchange Rate, REER appreciation, REER behavior, REER determinant, REER equilibrium, South Asia, WP